How should online retailers handle discount codes?

While voucher codes can be an excellent method of acquiring customers, but there can be drawbacks, namely reduced profit margins and the potential for checkout abandonment.

Distributing discount codes via affiliates and email campaigns can be an effective strategy, but are some retailers giving away discounts they don't need to simply because shoppers see the code entry box on the website?

A post on the excellent GetElastic blog has a few suggestions for how online retailers can minimise the use of these codes during the checkout process, and I've been looking at some examples from the UK...

The problem with discount codes

I experience this recently while shopping on Boden. Having selected several items and headed for checkout, I noticed the discount code entry box on the shopping basket page:

This immediately tells me that Boden uses these codes, and that I can perhaps save money on my order if I leave the site and head for Google. Thanks to Google Instant, I only have to type in the brand name before I see two or three sites offering Boden discount:

In fact, if customers are heading to Boden by typing in the brand name, they may well be distracted by these voucher code sites, as it's worth checking for discounts before they shop. In this case, I found several codes for Boden, including a nice 15% off code which saved me more than £10 on my order:

As well as Boden, plenty of online retailers now have coupon code boxes built into their checkout processes, and for many customers, all this box is doing is telling customers that they can get a better deal if they abandon the checkout and search for voucher codes.

There are a couple of potential consequences here. Firstly, if customers go off and find a discount code somewhere, then this eats into the retailer's profits. Secondly, if they can't find a code, or find a better one from a competing retailer, they may not return to complete their purchase.

How to minimise use of codes

Only show the discount code box to those customers that have arrived via affiliate links or marketing emails.

Issue private discount codes. These are sent to selected customers, and are associated with their email address or login details and therefore cannot be distributed via voucher code sites. However, the very existence of a code entry box will have some customers leaving the checkout to look for them.

Use the code entry box to build an email list. By displaying a 'how do I get this?' message next to the box, retailers can keep users on site to get their discount code, with the added benefit of gaining a customer's opt-in for future email marketing.

Link to your own coupon page. Again, this keeps customers onsite, and has the added SEO benefit of appearing in searches for brand name + voucher code.

Disguise the box. A crafty trick, but making the box less visible, perhaps in a duller colour than other calls to action may mean that some shoppers will not notice it.

Place a discount code next to the box. This could be a less generous offer than those on voucher code sites, but it could keep customers within the process while still feeling they have bagged a bargain.

Hide it below the fold. Those that have codes will find it anyway, but other shoppers won't immediately notice it.

Use of language. This example suggests that customers can 'enter voucher code (if any)', implying that codes may be scarce, and customers might be wasting their time Googling around for one.

Examples from UK retailers

I've been looking around some e-commerce sites in the UK for examples of how retailers handle this issue. Most seem to simply display the box at the shopping basket stage, though others will wait until the payment page, the very last point in the checkout process.

The latter approach may at least mean that, once customers have invested the time and effort in selecting products, entering logins, address details etc, they may be less inclined to head elsewhere in search of voucher codes.

There is a downside to this approach though; if a shopper's purchase is conditional on the discount on offer, then they should be reassured that this discount has been applied before they start the checkout process.

The code entry box on Argos is highly visible, while the language used, especially the 'apply discount' call to action, will have some shoppers wondering why they can't have a discount too.

The White Company displays the box a little further down the page, greys out the button, and uses the phrase 'if you know your voucher code, please enter it...', but it's still sitting there between the price and the checkout button:

Of all the retailers I looked at, Tesco seems to do most to minimise the use of voucher codes, only revealing the box at the payment stage, and using the phrase 'if you have a clubcard voucher or eCoupon...'

Since Tesco customers will be aware that it hands out vouchers to clubcard users, then they may not immediately think of discount codes and start hunting around for them.

In addition, Tesco only reveals the code entry box once you click on the add voucher button:

Comments (5)

Hero Grigoraki, Client Services Director at Webgains.com

It will be most interesting to see if there are any stats on AB testing the wording of the voucher box as well as its placement on the page, to see how they affect voucher redemption. Do you know if any retailers have done this?

Graham - good stuff and agree with all your best practice tips for use of discount codes. I was particularly impressed with the idea of having a 'how do I get these?' link beside the promotional code box - giving customers a promotional code in exchange for their email address makes good sense when customer loyalty is becoming a key driver of online profitability. This is a good example of the principle of 'exchange' when it comes to customer data - customers give data to enable you to market them more specifically, more relevantly and more profitably and you give them benefits proportional to the value of their data. An emerging analytics challenge for the retailer is to work out how much different types of customer data are worth to them.
One practical but vital ingredient in the promotion-code-for-email-address exchange is speed of response. If I'm in the check-out and want a promotion code, I want it instantly - I don't want to wait for even a couple of minutes. Making customers wait for their promotion codes is a sure-fire way to increase checkout abandonment rate.

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